Brief Introduction to the Laura Ashley Group

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The asset turnover measures the efficiency of the company to use its assets in generating sales revenue. In both 2014 and 2015 the asset turnover has been 1.46 times. This means Laura Ashley are generating 1.46 pounds for every pounds worth of assets they have. This is relatively good, and the consistency of the results shows they are at a steady level. If there had been any decline between the two years, it could have been an indication the company was shrinking.

ROCE formulas are another way to judge a company’s profitability. The ROCE measures how efficiently a company generates profits from its capital employed. In 2014 the ROCE for Laura Ashley was £9.44 return on every pound a shareholder invests. This has increased to £11.48 which shows good improvement for investors in the company. As for every pound they have invested, the company has made more profit then the last year. This is good for investors as stock values are likely to increase if the companies ROCE is higher. The ratios all show an increase between the 2014 and 2015 ratios with the exception of asset turnover, where both years were identical. The company’s profitability seems to be on the rise with a steady yearly growth from last year.

The company’s liquidity ratios also both show growth between the years 2014 and 2015 going from 1.32:1 to 1.47:1. Current ratio shows whether there is enough current assets to cover current liabilities. This is very important for a business, as if there wasn’t enough assets to cover liabilities, the business would be high risk for bankruptcy as they would effectively owe more value than they have in the company. The 2015 ratio means that the Laura Ashley group have effectively got enough current assets to cover nearly 1.5 times the amount of liabilities they have. This is good for the business however this depends on the companies’ payback receivable days and payable days. Currently the amount of days it take receivables to pay Laura Ashley is 158 days whereas the time it takes them to pay their creditors is 83 days. This means that although they have enough assets to cover their liabilities, they are paying their creditors nearly twice as fast as their debtors are paying them. This means their assets coming in barely cover the amount their paying out.

The acid test is similar to the current ratio but takes out inventory from the current assets as it is not a very liquid asset and is not easy to turn into cash. In 2014 the Laura Ashley group had an acid ratio of 0.69:1 this has increased in 2015 to 0.73:1. This shows the company is struggling with liquidity as it would not have enough liquid assets to cover its creditors.

The inventory turnover shows how often the business empty’s its warehouse completely. The Laura Ashley group in 2014 had a turnover rate of every 233 days in 2015 this had decreased heavily to only 107. This is good for the company as the lower the inventory turnover the less time the stock has to become damaged waiting around and therefore less chance of losing balance sheet value stock through damages. Another benefit of a lower stock turnover is lower storage and insurance costs which increases the value of the balance sheet.

The operating cycle is a key formula working out the efficiency of a company. It indicates how long cash spends tied up in current assets. In 2014 the company was being very inefficient, as its cash was spending 289 days tied up, in its working capital. This means money received was spending nearly a whole year being unavailable to be used by the company to pay creditors or to invest back into the business.

Financing

Gearing is the most important measure to quantify financial stability. For Laura Ashley in 2015 they have a gearing percentage of 10.03%. This is a moderate level of gearing but is on the lower end of moderate level. This means Laura Ashley have the potential to pay off its debt several times over, and can be considered a low risk investment however arguably their gearing is a lit. This is little low because not all debt is necessarily a bad thing. This is because loans, and other fixed interest liabilities, are a good way for a business to leverage their value and increase profits.

Interest cover shows how many times interest could be paid from operating profit. Laura Ashley interest cover in 2015 is 59.5 times this shows interest costs a very low in comparison to profits, which again makes investing in the company very low risk. Being able to stay current with interest payments is vital for a business as a business can rapidly become crippled if growing interests cannot be contained. Another benefit of having high interest cover, is that it allows the possibility that the company’s profits can drop drastically before interest payments will affect the company’s business dealings.

Financial analysis

Profitability

Formula

workings

Year ended 31 January 2015

Year ended 31 January 2014

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Gross profit margin

Gross profit *100[pic 6]

sales

129.1*100[pic 7]

303.6

= 42.52%

125.2*100[pic 8]

294.5

=42.51%

40, 49

ROCE

Operating profit*100

Capital employed[pic 9]

total equity + non-current liabilities

= capital employed

23.8*100[pic 10]

207.4

=11.48%

19.1*100[pic 11]

202.3

=9.44%

42, 64

Operating profit margin

Operating profit*100

sales[pic 12]

23.8*100[pic 13]

303.6